NAO VFM Report (HC 705 2010-11): The procurement of consumables by NHS acute and Foundation trusts [Exec summary]

NHS hospitals in England could save at least £500 million a year, and potentially a great deal more, if trusts got together to buy basic products in a more collaborative way, says the National Audit Office (NAO).

At present, a combination of inadequate information and fragmented purchasing means that NHS hospitals’ procurement of consumables represents poor value for money, according to a new report from the Office, which scrutinises public spending on behalf of Parliament.

The report points out that, with no central control over Foundation Trusts, the Department of Health cannot mandate more efficient procurement practices, and responsibility to demonstrate value for money in procurement falls upon the management of individual trusts. However, the price that trusts pay for the same items varies widely, it says.

An analysis of trusts’ spending data conducted by the Office found that, for around 66,000 products where data permitted a like-for-like comparison, the average variation between the highest and lowest unit price paid by trusts was 10%. However, for 5,201 products, the variation was greater than 50%.

“We estimate that £150 million, or an average of £900,000 per trust, could be saved if trusts had bought the same volume and type of products but paid the lowest available price at the point of purchase,” says the Office.

Some trusts are not getting value for money because they are buying many different types of the same product, the report notes. For example, it found that they bought 21 different types of A4 paper, 652 types of medical gloves and 1,751 different cannulas. Also, while one trust bought 13 different types of glove, another purchased 177 different types.

There are also unnecessary administrative costs because many trusts make multiple small purchase orders. Taking just four items bought in high volumes, around £7 million in administration costs could be saved each year if the number of orders were reduced to the level achieved by the best-performing 25% of trusts, it estimates.

Hospital trusts have complete freedom to decide what they buy and how they buy it - they can use regional procurement hubs or NHS Supply Chain or buy direct from suppliers. Available evidence is limited but,  says the Office, it suggests that new contracts are frequently being established which overlap and duplicate each other, incurring unnecessary administrative costs. Moreover, there is no national performance framework for hubs which would enable comparisons to be drawn between them or an assessment of their potential optimal performance to be made.

Commenting on the findings, NAO head Amyas Morse urged trust chief executives to consider procurement as a strategic priority.

“Given the scale of the potential savings which the NHS is currently failing to capture, we believe it is important to find effective ways to hold trusts directly to account to Parliament for their procurement practices,” he said.

Nigel Edward, chief executive of the NHS Confederation, called the report “challenging,” and said it suggested that there are “some real opportunities to save money through greater coordination.”

The NHS’s £100 billion a year budget means it can leverage enormous spending power, said Mr Edwards, and while it is really important for local hospitals to have the freedom to decide how to buy the things they need, the NAO report shows that a greater level of cooperation could save money. The challenge will be finding the best way of striking the right balance.

Moreover, the NAO’s findings are as much a challenge to organizations like NHS Supply Chain which also have to “raise their game and show that they can consistently deliver what their customers need,” said Mr Edwards. “National purchasing can get very unwieldy,” he added.